Which of the Following Statements Is CORRECT

question 35

Multiple Choice

Which of the following statements is CORRECT?

• A) The NPV profile graph for a normal project will generally have a positive (upward) slope as the life of the project increases.
• B) An NPV profile graph is designed to give decision makers an idea about how a project's risk varies with its life.
• C) An NPV profile graph is designed to give decision makers an idea about how a project's contribution to the firm's value varies with the cost of capital.
• D) We cannot draw a project's NPV profile unless we know the appropriate WACC for use in evaluating the project's NPV.
• E) An NPV profile graph shows how a project's payback varies as the cost of capital changes.

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Definitions:

Total Variable Cost

The sum of all costs that vary directly with the level of production, such as materials and labor costs.

Activity Level

The volume of production or the degree of service activity which directly affects the amount of various costs incurred.

Fixed Cost

An expense that does not change with the level of production or sales over a short period.

Sales Commissions

The payment given to sales employees based on the amount of sales they generate, typically a percentage of the sale price.